(20 March 2025 – Global) As US President Trump aggressively recalibrates US economic policies, the implications for foreign direct investment (FDI) in the US emerge as a pivotal question.
Citi purports that the eventual answer will not only influence the path of the American economy but also pose crucial implications for the entire global financial markets system. The US share of global FDI has increased in recent years, while the European Union (EU), United Kingdom (UK) and China have recorded stagnant flows. Citi anticipates global FDI flows to continue their flat trajectory, averaging around US$1.5 trillion per annum. Citi observes heightened risks skewed toward a strengthening of FDI, though the implications of Trump administration economic policies are difficult to reconcile.
In Citi’s Must C report, the bank explores the features, role and drivers of global FDI flows with a particular though not exclusive focus on the US. Across the various classes of capital flows, FDI is seen as a powerful driver of economic growth and development. FDI is ultimately attracted by key features of a country’s economy. These attractors include the size and growth of its markets and the availability of low-cost or highly skilled labour resources. A desire to diversify production or reduce frictions such as transportation costs or tariffs may also be in play.
“President Trump is in the process of potentially dramatically reshaping US international economic policies. By our reckoning, the ultimate implications of these changes remain to be seen. One of his stated objectives is to make the United States an attractive target for foreign investors and, correspondingly, to boost such inflows to the United States. He may even explicitly seek increased FDI as part of his negotiations with foreign governments and multinationals. Even so, the marked rise in policy uncertainty, and especially the ongoing threat of tariff hikes, may serve as a disincentive for foreign investors, as FDI typically gravitates toward stable and predictable policy regimes” commented Citi Global Chief Economist, Nathan Sheets.
“The euro area is one of the world’s leading destinations for foreign direct investment, but it is also an even greater source of investment for the rest of the world. We are constructive on the investment outlook for the euro area this year and next, at least relative to the weak performance over the past two years. Some of the drags on investment, such as costly and uncertain energy supply and high interest rates, have eased meaningfully” stated Citi Deputy Chief European Economist, Christian Schulz.
“The United Kingdom’s FDI flows, both as a share of its GDP and as a share of global FDI flows, are currently running near the lowest points of the last few decades. In our view, two major shocks including Brexit and the pandemic have contributed to these trends” Schulz added.
“China has seen a significant transformation in its FDI landscape in recent years. Net FDI into China has fallen sharply, reaching its lowest level since 1991. Outward direct investment (ODI) meanwhile has grown steadily, and China has been a net FDI source since 2022” said Citi Chief China Economist, Xiangrong Yu.